Demand-pull inflation is
A) inflation caused by increases in aggregate demand that generate an even larger increase in aggregate supply.
B) inflation caused by increases in aggregate demand that are not matched by increases in aggregate supply.
C) inflation caused by reductions in short-run aggregate supply.
D) inflation caused by reductions in long-run aggregate supply.

Question

Quizplus · Accepted Answer

Demand-pull inflation occurs when there is an increase in aggregate demand that is not matched by an increase in aggregate supply. This causes a situation where consumers are willing to pay more for the same amount of goods, leading to an increase in prices. Option A is incorrect because an increase in aggregate demand would lead to an increase in prices and not an increase in aggregate supply. Option C and D refer to cost-push inflation where the increase in prices is caused by reductions in short-run or long-run aggregate supply.

Demand-Pull Inflation Is